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What You Do When Congress Causes Student Debt to Double

Written by: Jeff Brown07/02/13 - 10:00 AM EDT

NEW YORK ( TheStreet) -- Because Congress couldn't settle its differences, 7.4 million college students saw the interest rate on student loans double to 6.8% on Monday. Debt on student loans, already an astounding $1 trillion, will grow even higher, dampening debtors' financial prospects for years, in many cases for their entire lives.

A fix, if and when it comes, is likely to be retroactive to Monday.

A study by the Urban Institute shows how seriously people take this issue. About 20% of Americans have student debt, and 57% of those worry about being able to make payments.

This worry spans all categories. As one would expect, it is highest among those earning $25,000 a year or less -- 72%. But a full 36% of those earning $100,000 or more are worried about making payments.

Various studies have shown that student debt prevents people from buying homes, getting married and saving for retirement. A high level of worry can make these problems even worse, even if the debtor is able to make payments.

Student loans are often called "good" debt" , because education is an investment that leads to higher earnings and more job flexibility. But deep in the Urban Institute report is a figure that its not so simple:

"On average, the benefits of post-secondary education outweigh the costs for people able to complete their degrees, although roughly half do not complete their degrees."

Half? Wow! That means students are piling on debt that won't pay off.

The report says that half of the students who failed to get the BA degrees they'd expected to earn had student debt averaging $14,457.

The lesson is clear: Don't pile on debt for a college degree unless you'll get the education and credentials that will make it pay. Piling on debt only to drop out turns good debt into bad, a category that includes things such as credit card debt for nights on the town.

The report lists several warning signs, or "risk factors," that increase the likelihood of dropping out. Sudents who are not well prepared, for instance, have trouble keeping up and drop out or flunk out.

Those who take a break between high school and college are also at higher risk of not completing their college programs. Some have too little commitment, while others may be too challenged by the finances, even if loans are available.

College students who enroll part time and those who work full time are also at higher risk of not finishing. Again, this may be a question of commitment, or an indicator of financial troubles.

Higher education is a good investment, generally, but only for those who actually get the skills and credentials that impress employers and equip them for better-paying jobs. Racking up debt to take a course here and there makes little sense if you can't go the distance.